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51
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
, 1976
"... This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of ..."
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Cited by 1496 (7 self)
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This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.
Dynamic Nonmyopic Portfolio Behavior
 Review of Financial Studies
, 1996
"... The dynamic nonmyopic portfolio behavior of an investor who trades a riskfree and risky asset is derived for all HARA utility functions and a stochastic risk premium. Conditions are found for when the investor holds more or less than the myopic amount of the risky asset; hedges against or speculate ..."
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Cited by 150 (1 self)
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The dynamic nonmyopic portfolio behavior of an investor who trades a riskfree and risky asset is derived for all HARA utility functions and a stochastic risk premium. Conditions are found for when the investor holds more or less than the myopic amount of the risky asset; hedges against or speculates the riskpremium uncertainty; is long or short on the risky asset; and holds more or less of the risky asset at longer horizons. The analytical solutions derived take multiple mathematical forms and include extreme cases in which investors with long but finite horizons can attain nirvana. In the standard paradigm of portfolio theory, the investor maximizes expected utility, with continuous or periodic revisions of his portfolio within his investment horizon. The purpose of the revisions is to adapt to shifts in wealth, interest rates, and beliefs, and to the shortening of the investor’s horizon as time passes.1 The investor’s opportunity set is defined to be the current riskfree rate and his probability beliefs for The authors would like to thank David Feldman, Robert Merton, Paul Samuelson, editor Chifu Huang, executive editor Franklin Allen, and an anonymous reviewer for their comments and suggestions. Any errors are the responsibility of the authors. Address correspondence to Edward
On the Concavity of the Consumption Function
, 1995
"... Zeldes (1989), Carroll (1992; 1993), and others have shown that optimal consumption behavior for consumers facing income uncertainty can be remarkably di erent from the certaintyequivalent case. Carroll (1992; 1993) observes that many of the di erences can be attributed to the concavity of the cons ..."
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Cited by 84 (11 self)
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Zeldes (1989), Carroll (1992; 1993), and others have shown that optimal consumption behavior for consumers facing income uncertainty can be remarkably di erent from the certaintyequivalent case. Carroll (1992; 1993) observes that many of the di erences can be attributed to the concavity of the consumption function under uncertainty, but he does not describe the conditions under which the consumption function will be concave. We show that if labor income is stochastic, the consumption function will be concave for many commonly used utility functions, and if both labor income and capital income are stochastic, the consumption function is concave for an even broader group of utility functions.
A Simulation Approach to Dynamic Portfolio Choice with an Application to Learning About Return Predictability
, 2005
"... ..."
Optimal Dynamic Portfolio Selection: MultiPeriod MeanVariance Formulation
 Math. Finance
, 1998
"... The meanvariance formulation by Markowitz in 1950s and its analytical solution by Merton in 1972 paved a foundation for modern portfolio selection analysis in single period. This paper considers an analytical optimal solution to the meanvariance formulation in multiperiod portfolio selection. Spec ..."
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Cited by 37 (1 self)
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The meanvariance formulation by Markowitz in 1950s and its analytical solution by Merton in 1972 paved a foundation for modern portfolio selection analysis in single period. This paper considers an analytical optimal solution to the meanvariance formulation in multiperiod portfolio selection. Specifically, analytical optimal portfolio policy and analytical expression of the meanvariance efficient frontier are derived in this paper for the multiperiod meanvariance formulation. An efficient algorithm is also proposed in this paper in finding an optimal portfolio policy to maximize a utility function of the expected value and the variance of the terminal wealth. Key Words: Multiperiod portfolio selection, multiperiod meanvariance formulation, utility function. This research was partially supported by the Research Grants Council of Hong Kong, grant no. CUHK 4130/97E. The authors very much appreciate the constructive comments from Professor Stanley R. Pliska. y Author to whom a...
Portfolio choice problems
 Handbook of Financial Econometrics, forthcoming
, 2004
"... After years of relative neglect in academic circles, portfolio choice problems are again at the forefront of financial research. The economic theory underlying an investor’s optimal ..."
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Cited by 31 (2 self)
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After years of relative neglect in academic circles, portfolio choice problems are again at the forefront of financial research. The economic theory underlying an investor’s optimal
Do AssetDemand Functions Optimize Over the Mean and Variance of Real Returns? A SixCurrency Test
 Journal of International Economics
, 1984
"... International asset demands are functions of expected returns. Optimal portfolio theory tells us that the coetlicients in this relationship depend on the variancecovariance matrix of real returns. But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not s ..."
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Cited by 30 (2 self)
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International asset demands are functions of expected returns. Optimal portfolio theory tells us that the coetlicients in this relationship depend on the variancecovariance matrix of real returns. But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not set up to test the hypothesis of meanvariance optimization. We use maximum likelihood estimation to impose a constraint between the coetlicients and the error variancecovariance matrix. For a portfolio of six currencies, we are able statistically to reject the constraint. Evidently investors are either not sophisticated enough to maximize a function of the mean and variance of endofperiod wealth, or else are too sophisticated to do so. 1.
Markowitz revisited: meanvariance models in financial portfolio analysis
 SIAM Rev
, 2001
"... Abstract. Meanvariance portfolio analysis provided the first quantitative treatment of the tradeoff between profit and risk. We describe in detail the interplay between objective and constraints in a number of singleperiod variants, including semivariance models. Particular emphasis is laid on avo ..."
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Cited by 24 (1 self)
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Abstract. Meanvariance portfolio analysis provided the first quantitative treatment of the tradeoff between profit and risk. We describe in detail the interplay between objective and constraints in a number of singleperiod variants, including semivariance models. Particular emphasis is laid on avoiding the penalization of overperformance. The results are then used as building blocks in the development and theoretical analysis of multiperiod models based on scenario trees. A key property is the possibility of removing surplus money in future decisions, yielding approximate downside risk minimization.
Soft liquidity constraints and precautionary savings’, Bank of England Working Paper no
, 2000
"... those of the Bank of England or Monetary Policy Committee members. Ideas for this paper ..."
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Cited by 11 (2 self)
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those of the Bank of England or Monetary Policy Committee members. Ideas for this paper
Stock selection using support vector machines
 Neural Networks, 2001. Proceedings. IJCNN’01. International Joint Conference on
, 2001
"... We used the Support Vector Machines in a classification approach to 'beat the market'. Given the fundamental accounting and price information of stocks trading on the Australian Stock Exchange, we attempt to use SVM to identify stocks that are likely to outperform the market by having exce ..."
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Cited by 10 (0 self)
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We used the Support Vector Machines in a classification approach to 'beat the market'. Given the fundamental accounting and price information of stocks trading on the Australian Stock Exchange, we attempt to use SVM to identify stocks that are likely to outperform the market by having exceptional returns. The equally weighted portfolio formed by the stocks selected by SVM has a total return of 208 % over a five years period, significantly outperformed the benchmark of 71%. We have also given a new perspective with a class sensitivity tradeoff, whereby the output of SVM is interpreted as a probability measure and ranked, such that the stocks selected can be fixed to the top 25%. 1